The 1031 Exchange Guide to Real Estate

One of the best aspects of section 1031 is that it applies to nearly all investment real estate. As long as your property is held for the appropriate purposes (investment or business), you can exchange an apartment complex for a hotel, farmland for a retail building, or any other combination. In this article, we are going to look at a few types of real estate that are commonly exchanged under section 1031 of the Internal Revenue Code.

Apartment Buildings & Hotels

Apartment buildings are some of the most commonly exchanged properties under section 1031. If you own a duplex building and want to exchange up to a fourplex – you’re a great candidate for 1031 exchange.

Farmland

Many farmers are not aware that they can avail themselves of a 1031 exchange when selling their land. This can allow them to defer a big capital gains tax bill and reinvest their assets into a less management intensive property in their retirement years.

Retail

Retail buildings, storefronts, strip malls, and more can all qualify for 1031 exchange treatment as well.

Learn More About Section 1031

If you’d like to learn more about section 1031 of the Internal Revenue Code and how it can help you save money on capital gains taxes, contact CPEC1031 today. Our qualified intermediaries have over two decades of experience facilitating exchanges of real property across the United States. We can help guide you through the entire 1031 exchange process and make sure you feel comfortable every step of the way! Contact us at our downtown Minneapolis office to set up a time to meet.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Case Study – Camp Grounds

Recently, we had a client come to us with an interesting 1031 exchange situation. This client owns a camp ground and wants to do a 1031 exchange. However, he lives on a portion of the camp ground. Is it possible to do a 1031 exchange in this situation? In this article, we are going to dive into this 1031 exchange case study and talk about the seller’s options.

Camp Ground 1031 Exchange

When sellers live on a portion on the real estate that they are exchanging, 1031 exchanges can get a little tricky. In this particular instance, the seller would want to allocate the gross purchase price into three or more categories:

• 1031 real estate

• 121 principal residence (which must be reasonable and substantiated)

• Non-1031 personal property, goodwill and equipment (sell for remaining book value)

Memorialize this allocation in a written agreement between buyer and seller.

1031 Exchange Professionals

At CPEC1031, our 1031 exchange professionals have over twenty years of experience facilitating exchanges of real property for clients across the United States. Our team can walk you through each and every step of the 1031 exchange process. We can also prepare your documentation and answer all of your burning questions. Contact us today to set up a time to chat with one of our 1031 exchange professionals. Our primary office is located in downtown Minneapolis, but we work with clients throughout the country.

•  Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

When to Involve a Qualified Intermediary in Your 1031 Exchange

Recently, a client came to us with the following question:

"We have the property to be relinquished on the market and I am in the final steps to get the property I will be buying under contract. Do I need to send anything to the qualified intermediary before I sign the purchase agreement on the new property?"

Involving a Qualified Intermediary

Good question! No, the intermediary does not need anything prior to your signing the purchase agreements. Intermediaries typically get involved once a purchase agreements is signed and the title process is getting started (prior to closing).

Once you have them, send a PDF copy of the signed purchase agreements and customer application form completed (to the extent possible) to your intermediary to get started with the 1031 exchange process. You may also want to include our sample text into your purchase agreements, and let your title-closers know that you are doing a 1031 exchange.

Exchange Your Property

CPEC1031 works with taxpayers large and small on the exchanging of real estate under section 1031 of the Internal Revenue Code. With twenty years of experience under our belts, we can answer all of your questions, advise you on replacement properties, and prepare all of your needed documentation throughout the course of your exchange. Reach out to us today to learn more about our 1031 exchange services and get your exchange off the ground today. Our office is located in downtown Minneapolis, but we work with clients across the United States.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Do You Have to Reinvest All Net Proceeds into Your 1031 Replacement Property?

In a 1031 exchange, does the full amount of proceeds have to be invested into the replacement property including the original down payment amount? For example, if you put $45K down, but will profit $100K - does all $100K have to roll into the replacement property or just the $65K profit? 

3 Rules of Thumb to Follow

This is a common 1031 exchange question. In this scenario, you would probably want to re-invest all of the proceeds into the new Replacement Property because the first cash-out is attributed to gain from an accounting perspective.

There are three general rules of thumb to quickly see if you will defer all of the recognition of gain.

1. Typically, you will acquire replacement property that is “up or equal” in Value* (price); {*net of sales commissions and customary transactional expenses}.

2. You will roll over all of your Equity (net proceeds) from the relinquished property into your replacement property.

3. And to the extent that you were relieved of liabilities and DEBT, such as mortgages on your old relinquished property, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

You can have a partial tax deferral if you miss these general benchmarks.

For more information, check out the video below:

Be sure to check with your CPA about these general rules of thumb, to make sure they apply to your specific situation.

• Start Your Exchange: If you have questions about 1031 exchange accounting rules, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved